COMMERCIAL REAL ESTATE: NEW JERSEY

COMMERCIAL REAL ESTATE: NEW JERSEY; After a False Start, a Big Building Awaits Its Tenant

By RACHELLE GARBARINE

Published: May 29, 2002

A big industrial building in North Bergen, N.J., that sat unused for two years after it was outfitted with $35 million worth of high-technology equipment that was never used is to become the headquarters of a fast-growing retailing chain.

It will be the home of Vitamin Shoppe, the discount retailer, which has leased 231,718 square feet of the 350,000-square-foot building. The space had been equipped, but never opened, as a distribution center for Webvan, the Internet-based grocery company that closed last year.

Vitamin Shoppe will set up its corporate headquarters and distribution center by next March in the building, at 2101 91st Street in this Hudson County town, close to Manhattan. The retailer is consolidating and expanding from 91,000 square feet in four buildings, one in Secaucus and the others elsewhere in North Bergen.

It will occupy the space formerly leased by Webvan, which had turned the inside of the 15-year-old structure into a distribution center that was crisscrossed with conveyor belts and relied on a computerized system to pack customers' orders. There were also storage and preparation areas, a training room and offices.

Many of the specialty rooms were dismantled, and much of the equipment and furniture were auctioned as part of a bankruptcy court settlement with the building's owner, Hartz Mountain Industries of Secaucus, one of the larger property owners in the 32-square-mile Meadowlands.

Dot-com casualties did not hit northern New Jersey as hard as other parts of the nation, said Frank Lopriore, a managing director at the Saddle Brook, N.J. office of Insignia/ ESG, the national real estate services company. In the Meadowlands, Mr. Lopriore said, e-commerce companies held six leases for just over 500,000 square feet. Much of that has been vacated by the dot-com tenants.

Webvan's space was the largest. But Emanuel Stern, president of Hartz, said, ''Although Webvan never operated out of the building, it paid its rent until its bankruptcy, and with our security deposit and the building's asset, we came out whole.''

The overall amount of empty dot-com space is a fraction of the 5.74 million square feet of industrial space vacant in the Meadowlands as of the first quarter of this year, putting the vacancy rate at 10 percent, up from 6 percent a year ago. The average rent being asked rose to $6.55 from $6.39 a square foot a year, Mr. Lopriore said, although some landlords are offering concessions, like two to four months of free rent, as inducements to sign leases.

Despite the higher vacancy rate, Mr. Lopriore said, the Meadowlands remains a stable market because it is close to Manhattan and transportation and has access to labor. The available space, he said, will be leased as expanding companies, waiting for the economy to improve, make deals.

When Webvan went bankrupt, said Mr. Stern of Hartz, ''we wanted our asset back and fast-tracked our settlement.'' He said, however, that many of the improvements in the building had been removed because most prospective tenants could not use them.

That did not matter to Vitamin Shoppe, which has 100 stores and plans to open 50 more in the next 18 months.

''We were bursting at the seams,'' said Thomas Tolworthy, president of Vitamin Shoppe, discussing the reasons for the move. ''Being able to consolidate operations under one roof would increase efficiency.''

Jonathan Schultz, president of the Schultz Organization/TCN Worldwide, a real estate services firm in Woodbridge, N.J., said, ''Large discounters and small providers of essential goods, like food and even vitamins, are among the few retailers growing because they are recession-proof.''

The 25-year-old Vitamin Shoppe spent nine months searching for a new home before selecting the North Bergen building. Mr. Tolworthy said the fact that the new headquarters were about two miles from the company's current locations is expected to help meet the main goal of retaining its 280 employees.

Vitamin Shoppe is also able to take advantage of the improvements still in the building, like the new ceiling, floor and lighting, said Jared L. Horowitz, a broker at the Manhattan office of Cushman & Wakefield, the real estate services firm that represented the retailer in the lease. He said Vitamin Shoppe would expand the office space to 40,000 square feet, upgrade the building's exterior and perhaps create a 3,000- to 5,000-square-foot store. Mr. Horowitz is the son of Vitamin Shoppe's founder, Jeffrey J. Horowitz.

Executives involved with the transaction would not disclose the rent. But Mr. Tolworthy said the value of the 15-year lease, including the planned improvements, was slightly more than $20 million.